Page 7 - GLNG Week 47 2022

GLNG COMMENTARY GLNG

through this winter without running out of gas, any country that attempts to cap prices. Russia
the International Energy Agency (IEA) warned delivers some 2mn barrels of crude oil to the EU
in a recent paper that next year Europe’s storage per day, an amount that would be very difficult
tanks cannot be filled without more Russian gas. to source from other producers. Oil traders say
LNG deliveries to Europe have soared this that could lead to a spike in oil prices and renew
year, making up much of the shortfall, but Russia the energy crisis that Europe is already suffering
has still sent 60bn cubic metres of gas to Europe from.
in the first half of this year, about half its usual The oil cartel OPEC seems to be anticipating
level, and that gas will be almost impossible to the shortage of supply after the oil embargo on
replace, even with elevated LNG imports. crude deliveries to Europe comes into effect on
Russian state-owned energy monopoly Gaz- December 5, after it announced this week that it
prom repeated threats the same day that any was mulling an increase in production, after it
country attempting to impose the gas price cap cut production quotas last month by 2mn barrels
on Russia will simply be cut off from supplies of per day (bpd) – roughly the same amount that
Russian gas. Russia delivers to Europe.
“Russia is using gas as a tool of political pres- OPEC+ countries, led by Saudi Arabia and
sure, not for the first time. This is a gross manip- including non-permanent members like Russia,
ulation of facts in order to justify the decision to are considering the possibility of stepping up
further limit the volume of gas supplies to Euro- oil production in December to 500,000 bpd. A
pean countries,” said Ukrainian gas operator’s final decision is due to be announced at the next
representative Olha Bielkova, as cited by the Kyiv meeting on December 4 – the day before the EU
Independent. embargo is due to start.
The US has already complained bitterly to
Oil price cap at $60-$70 Riyad that OPEC+ seems to be working against
The Russian oil price cap will be set between the Western oil sanctions on Russia by rebuffing
$60 and $70 per barrel, the Wall Street Journal US calls on the Kingdom to increase oil output
reported on November 22, citing US officials, a to bring prices down and so put more pressure
level that will make little difference to the Rus- on Moscow. The Saudi have denied the reports
sian budget, if those prices are confirmed at that OPEC+ is planning an increase. The cost of a
meetings slated for later this week. barrel of Brent on the production increase news
“In October Urals averaged ~$70. Russia’s fell below $83 for the first time since the end of
budget assumes Urals price will be $70 in 2023, September.
decline to $65 in 2025. And with Urals roughly With the European Union oil embargo loom-
at $60 the budget earns ‘base’ O&G revenue, i.e. ing in December, Russia has already lost more
no new savings,” said Ivan Tkachev, the econom- than 90% of its market in the bloc’s northern
ics editor at RBC and one of the most respected countries, Bloomberg reported earlier this week.
business journalists in Russia. Russia shipped just 95,000 bpd to Rotterdam –
The proposal also includes a 45-day grace its only remaining European destination for
period that will exempt any oil loaded before seaborne deliveries outside the Mediterranean/
the embargo comes into force but delivered Black Sea basin – in the four weeks to November
afterwards, provided that it is delivered before 18, down from more than 1.2mn bpd sent to the
January 18. region’s ports each day in early February. Total
The Russian Duma voted through the 2022- volumes shipped from Russia fell to a nine-week
25 budget in the second of three readings on low of 2.67mn bpd in the seven days to Novem-
November 21, setting the assumed price for oil ber 18, the newswire reported.
this year at $70 and forecasting a budget deficit Purchases of oil from Russia by India and
of 2% of GDP, in keeping with the Ministry of China have soared, taking up most of the slack
Finance (MinFin) forecasts for the deficit made caused by falling European imports, but both are
in April at St Petersburg International Economic reportedly now importing about as much oil as
Forum (SPIEF). they can as they run up against refinery capacity
Robin Brooks, the chief economist at Institute limitations.
of International Finance (IIF), among others has China in particular has seen the imports of
called for a $30 oil price cap that would plunge Russian oil double from $35bn worth of gas last
the Russian budget into deep deficit and almost year to $60bn this year – even with a reported
certainly lead to a balance of payments crisis if 25%-30% discount on the market price – but
enacted. reportedly China has slowed the rate of imports
However, the EU has been reluctant to while Beijing waits to see if it can demand deeper
impose too harsh a cap after the Kremlin made discounts from Russia after the oil embargo
it clear that it would simply stop deliveries to comes into effect next month.™

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